What it is
When a retail investor places a trade through a brokerage app, the brokerage often routes that order to a market maker rather than directly to an exchange. In return for this order flow, the market maker pays the broker a small fee. This arrangement allows market makers to profit from the bid-ask spread and provides brokers with a revenue stream, often enabling them to offer commission-free trading to their clients.
PFOF is a significant topic in discussions about market structure, transparency, and fairness for retail investors. Regulators and financial news frequently debate whether PFOF creates a conflict of interest, potentially incentivizing brokers to prioritize payment over getting the best execution price for their clients. It impacts how retail trading apps operate and is often scrutinized during periods of high market volatility or unusual trading activity.
Why it matters
PFOF affects how your trades are executed and explains why some brokers offer commission-free trading, impacting transparency and potential execution quality.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice